Market Update
US tsys trading higher, yields ~1bp lower across the curve, 10Y 2.88%(-1bp), light volume in TY futures, US equity futures lower since early NA hrs, S&P -6. Core EGBs lower led by gilts with the 10Y gilt +4bps @ 1.28% -volumes in bund & gilt futures ~50% of 10-day avg as year end approaches and in front of FOMC decision Wed. Implied prob of fed rate hike slightly lower since last week , still at 74% – thou the outlook for 2019 is less certain, the CITI US Macro Surprise Index has fallen to the lowest levels since Sep., while the Fed’s 5Y forward inflation breakeven measure is down sharply just since October, below 2.0% for the first time in a year. GOCs trading higher, in line with tsys – CPI highlight for the week on Wednesday.
News headlines
Stocks Struggle as Dollar Slips to Start Fed Week: Markets Wrap (Bloomberg) U.S. equity futures edged lower and stocks fell in Europe after a mixed session in Asia as markets looked to the Federal Reserve for hints on how a volatile year may end. Benchmark Treasury yields steadied at around 2.88 percent. Contracts on the Dow, S&P and Nasdaq all fluctuated before nudging down. Retailers led declines in the Stoxx Europe 600 Index as Asos Plc plunged after warning that its Christmas shopping season got off to a disastrous start. Treasuries held Friday’s gain and the yen was steady after a bout of risk aversion hammered global equities in recent sessions. The dollar fell after a strong week. Malaysia turned up the heat on Goldman Sachs Group Inc., filing criminal charges against the U.S. bank.
U.S. Student Loan Debt Sets Record, Doubling Since Recession (Bloomberg) U.S. student loan debt outstanding reached a record $1.465 trillion last month and one particular set of borrowers is having a hard time paying back their loans, according to a Bloomberg analysis of student loan securitization data. This debt is raising fiscal risks. « Over 90% of student loans are guaranteed by the U.S. Department of Education, meaning that if a recession causes a rise in youth unemployment and triggers mass defaults, this contingent liability could prove burdensome for the U.S. government budget, » said Paul Della Guardia, economist at the Institute of International Finance in emailed comments.
Trudeau Says Canada Wants Out of Saudi Vehicle Export Deal (Bloomberg) Canada was looking for a way out of a $13 billion deal to export armored vehicles to Saudi Arabia, Prime Minister Justin Trudeau said in a televised interview Sunday. “We are engaged with the export permits to try and see if there is a way of no longer exporting these vehicles to Saudi Arabia,” Trudeau told CTV on Sunday, without elaborating.
Google to Invest More Than $1 Billion to Establish NYC Campus (Bloomberg) Google will invest more than $1 billion to expand its New York City presence, the search giant said in a blog post Monday. The Alphabet Inc. division said it had reached lease agreements at 315 and 345 Hudson Street and signed a letter of intent at 550 Washington Street to make up the new 1.7 million square-foot campus, called Google Hudson Square.
Canada gets consular access to second man detained in China (Reuters) Canadian diplomats gained consular access on Sunday to the second of two men detained by China over the past week, Canada’s foreign ministry said in a statement that gave few details, as China said it was ensuring their rights were protected. John McCallum, Canada’s ambassador to Beijing, met Michael Spavor, the Canadian ministry said. Spavor and Michael Kovrig were both picked up after Canada arrested a senior Chinese executive on a U.S. extradition request.
Boeing increases value for Embraer’s commercial business to $5.26 billion (Reuters) Brazil’s Embraer (EMBR3.SA) said on Monday it had finalised the terms of a proposed deal to sell 80 percent of its commercial aviation business to Boeing, (BA.N) now valuing the division at $5.26 billion. As originally announced in July, the deal valued Embraer’s commercial division at $4.75 billion. Embraer now expects it will receive $3 billion from the deal, after accounting for closing costs. It is unclear whether any part of this difference relates to debt.
May attacks second Brexit referendum plan as a breach of trust (BNN) U.K. Prime Minister Theresa May will attack supporters of a second Brexit referendum on Monday as she explains to Parliament why European Union leaders rebuffed her attempt to make her divorce deal more attractive to lawmakers. May, who accused former Prime Minister Tony Blair of “undermining” her negotiations by pushing for a second vote, will say it would be a catastrophic breach of trust. David Lidington, May’s effective deputy, and Chief-of-Staff Gavin Barwell denied supporting another plebiscite on Sunday after newspaper reports that they’d had talks on the issue.
Risk of 2019 recession ‘higher than a lot of people think’: Rosenberg (BNN) High Canadian debt levels will make it more difficult for Canada to deal with a looming global recession in 2019, according to Gluskin Sheff + Associates chief economist and strategist David Rosenberg. “Nothing is inevitable, but the risks of recession for Canada for next year are higher than a lot of people think,” Rosenberg said in an interview with BNN Bloomberg’s Andrew McCreath. Canadians currently owe about $2.2.-trillion in total debt, up by nearly a trillion dollars in just the last decade, Rosenberg said. As interest rates rise, Rosenberg warned that higher debt servicing costs could shave as much as 75 basis points off Canadian 2019 GDP growth.
Overnight markets
Overview: US 10yr note futures are up 0.065% at 120-15, S&P 500 futures are down -0.28% at 2598.25, Crude oil futures are up 0.92% at $51.67, Gold futures are up 0.19% at $1243.8, DXY is down -0.25% at 97.202, CAD/USD is up 0.07% at 0.7467.
| Cda Benchmarks | Yield | Tsy Benchmarks | Yield |
| 2 Year | 2.014% | 2 Year | 2.725% |
| 5 Year | 2.028% | 5 Year | 2.72% |
| 10 Year | 2.087% | 10 Year | 2.88% |
| 30 Year | 2.263% | 30 Year | 3.137% |
US Economic Data
| 8:30 AM | Empire Manufacturing, Dec est 20.0 (23.3 prior) |
| 10:00 AM | NAHB Housing Market Index, Dec est 61 (60 prior) |
| 16:00 US | Total Net TIC Flows, Oct (-29.1b prior) |
| Net Long-term TIC Flows, Oct (30.8b prior) |
Canadian Economic Data
| 8:30 AM | Int’l Securities Transactions, Oct (7.70b prior) |
| Existing Home Sales MoM, Nov (-1.6% prior) | |
| Bloomberg Nanos Confidence, Dec 14th (53.8 prior) |
Disclosure and Disclaimer
The following sources of information have been, or may have been, used partially or in their entirety to compile the herein provided CTI Capital Securities Inc. (“CTI Capital”) ‘Morning Comments.’ CTI Capital believes these sources to be generally reliable, however, as said sources are varied and from third parties, CTI Capital cannot guarantee the accuracy or completeness of said information: Canadian Press (CP); Bloomberg News (BN); Wall Street Journal (WSJ); Stone & McCarthy Research Associates (SMRA); New York Times (NYT); Financial Times (FT); Market News International (MNI); Globe and Mail; Associated Press (AP); CNW Group (CNW); Reuters; Business News Network (BNN); Market Watch; and others.
Ivan Greenstein, Stephan Buu, Hugues Savard
Institutional Bond and Equity Desk
CTI Capital Valeurs Mobilières Inc.
Tel : (514)-861-0240
Fax: (514)-861-3230
Institutional Bond and Equity Desk
CTI Capital Valeurs Mobilieres Inc.
Tel : (514)-861-0240
Fax: (514)-861-3230